International Journal of Accounting Research

Abstract

Determinants of Loan Repayment Performance of Smallholder Farmers: Empirical Evidence from Southern Zone of Tigray, Ethiopia

Hailekiros Nigus Adhana*, Hadush Redae Kahisu and Salih Suleman Fetiwi

This study sought to examine the determinants of smallholder farmers’ loan repayment performance in southern Tigray using binomial logistic regression analysis. Both quantitative and qualitative data were collected from a crosssection of 362 randomly selected smallholder farmers, from which 17.40% of them were found to be defaulters while the remaining 82.60% were non-defaulters. In this explanatory study, loan repayment performance was modeled as a function of age, gender, marital status, education level, number of dependents, distance to microfinance, saving behavior, loan reputation, loan timeliness, loan size, loan diversion tendency, training, other loans, repayment period suitability, and perception on prevalent political instability. Out of the fifteen variables used in the analysis only eight variables; namely, the number of dependents in household, saving behavior, loan reputation, loan timeliness, loan diversion, loan usage training, repayment period suitability, and perception of the prevalent political turmoil were found to have significant bearing on the repayment performance of the smallholder farmers. It can, therefore, be concluded that voluntary saving behavior of borrowers, better credit experience of borrowers, non-diverting loan utilization practices of borrowers, improved loan usage trainings by microfinanciers, suitable repayment arrangements, and stable political environment are the major contributors to enhanced loan repayment performance of borrowers. Hence, based on the results of this study, it is recommended that the microfinance institutions, borrowing households, and concerned governmental bodies should join hands together to improve loan repayment performance in the industry.

Published Date: 2024-01-03; Received Date: 2023-05-30